Welcome to John Ransom’s Stocks in the News where the headlines meet the trendlines:
Stock number one: Forest Labs
Forest Labs buyout may boost other drug stocks--USAToday
Shares of Forest Labs, a maker of treatments for conditions including irritable bowel syndrome, are definitely the biggest winners from the news, rocketing $20.88, or 29%, $92.27 in midday trading Tuesday. And in an interesting twist, shares of the buyer, Actavis, is also higher, $13.36, or 6.7, to $205.24%. Typically, shares of the acquiring company initially fall as investors worry that it paid too much for the deal.
Trailing PE -; Forward PE: -
Estimate Trend: Up
Ransom Note Trendline: Sell Forest Labs
Stock number two: Blucora, Inc.
Blucora (BCOR) Plunges on High Volume - The Street.com
Blucora (BCOR_) was plummeting 15.54% to $20.02 shortly after noon on Tuesday on higher-than-usual volume.
The stock had a volume of more than 5.3 million, compared to the average of 486,723. The company, which provides metasearch services for consumers, plans to report its fourth-quarter and full-year results for the fiscal year 2013 on Thursday, Feb. 20 after the market closes.
Trailing PE: 30 Forward PE: 8
Estimate Trend: Flat
Ransom Note Trendline: Sell Bluecora
Stock number three: Waste Managment
Waste Management falls after results, guidance miss expectations - Fly on the Wall
Shares of Waste Management (WM), which provides collection, transfer, recycling, and waste disposal services, are falling after the company’s fourth quarter results and fiscal 2014 outlook missed consensus estimates. WHAT'S NEW: This morning, Waste Management reported Q4 adjusted earnings per share of 56c and revenue of $3.5B, compared to analysts' consensus forecasts for 61c and $3.58B, respectively.
Trailing PE: 21; Forward PE: 17
Estimate Trend: Flat
Ransom Note Trendline: Sell Waste Management
Over the last few weeks, volatility has picked up in the stock market. This has driven many stocks to short-term lows, yet fundamentals continue to be favorable. Despite a rebound in bullish sentiment per the latest American Association of Individual Investor survey, investors pulled $24 billion out of U.S. equity funds during the week of Feb 5. Even though the stock market had one of its best weeks in some time last week, there are ample opportunities to pick up stocks with discrepancies between the business fundamentals and the price.
It just never stops revolving – never. It’s nice that this particular company wouldn’t exist at all were it not for the taxpayer dollars it was given.
So in a sense LaHood is still being paid by you and me, even now that he’s out of government. Only he’s likely being paid a good bit more these days.
(From The Washington Free Beacon)
Proterra made the announcement on Tuesday, adding that LaHood “can offer insight into so many of the key issues facing our industry.”
As transportation secretary, LaHood wrote a post titled “Winning the Future, Proterra Style” on the White House blog about a visit he made to South Carolina to tour Proterra, a company he said could “out-innovate, out-educate, and out-build their competition.”
LaHood explained that Proterra was a troubled company before Obama’s Department of Transportation came to its support with a grant program.
Read more at Against Crony Capitalism.org
This can not be allowed to happen.
Government content commissars in newsrooms? This is anathema to everything this country is about. Everything.
We must fight this. Yet another effort pushed by this administration to limit the free expression of thought in this country.
The Land of the Free is now ranked 46th in press freedom according to Reporters Without Borders. We dropped 13 spots last year.
This is the United States people. We can not allow this to happen on our watch.
As if illegal seizures of Associated Press phone records and the shadowy tailing of the mother of a Fox News reporter weren’t menacing enough, the Obama administration is going out of its way to institute a new intrusive surveillance of the press, as if the press wasn’t supine enough.
Ajit Pai, a commissioner with the Federal Communications Commission, warned this week in a Wall Street Journal op-ed that a plan to dispatch researchers into radio, television and even newspaper newsrooms called the “Multi-Market Study of Critical Information Needs” is still going forward, despite the grave danger it presented to the First Amendment.
Pai warned that under the rationale of increasing minority representation in newsrooms, the FCC, which has the power to issue or not issue broadcasting licenses, would dispatch its “researchers” to newsrooms across America to seek their “voluntary” compliance about how news stories are decided, as well as “wade into office politics” looking for angry reporters whose story ideas were rejected as evidence of a shutout of minority views.
Prices of many goods in Argentina soared in the past two weeks. US brands are at the forefront of the action. Via translation from Lanacion, In two weeks, Warehouse Prices Rose 30%, with mayonnaise, cookies, and coffee leading the way. Officially, prices are up 3.3%. In reality, prices are up 30%.
According to official data, the price of food and beverages was up 3.3%. A tour of various supermarkets in the city of Buenos Aires, found escalating inflation is much higher in stock products, perfumery and milk.
Here are some price increases from the article. Please use relative price increases. They use the $ symbol for pesos.
Currency Devaluations Hit P&G Earnings
Inquiring minds may be wondering how this affects earnings of US multinational corporations.
Forbes explains Venezuela, Argentina Currency Devaluations Hit P&G Expected Sales And Earnings.
Retail investors aren’t the only ones suffering from the woes of the emerging markets: Procter & Gamble PG +2.06% is feeling the pain of foreign currencies, too. Due to devaluations in currencies like the Venezuelan bolivar, Argentine peso and Turkish lira, to name a few, the consumer product giant said that it is lowering its outlook for its full-year 2014 sales and earnings.
P&G, which in January announced second quarter earnings results that were already feeling the ill effects of foreign exchange rates, said Tuesday afternoon that it would incur a charge between $230 million and $280 million, or 8 cents to 10 cents per share, a one-time charge resulting from revaluing its Venezuelan balance sheet in the wake of a change in the way the Venezuelan bolivar is valuated. Venezuela uses a de-facto dual-exchange rate system, but policy changes recently enacted by the Venezuelan government are affecting the way that certain imports — i.e, certain P&G products — are exchanged.
Specifically, the policy changes dictate that the state-run currency rate between the bolivare and the dollar is now 11.4 bolivares per one U.S. dollar; P&G, meanwhile, had calculated the value of its foreign transactions using the other, 6.3-bolivare-per-USD rate, thus the near-$300 million charge P&G now expects to incur on its third quarter balance sheet.
In reevaluating its outlook, P&G also took into consideration the recent devaluation of the Argentine peso, Turkish lira, South African rand, Russian ruble, Ukrainian hryvnia and Brazilian real. Of the group, the Argentine peso has proven the biggest problem, declining 20% to 8 pesos per dollar.
All told, P&G’s full-year sales growth forecast is 2%, down from a prior range of 3% to 4% for fiscal year 2014. The company also lowered its earnings-per-share growth forecast to 3% to 5%, down from prior guidance of 5% to 7% growth.
Mike "Mish" Shedlock
Read more at http://globaleconomicanalysis.blogspot.com/2014/02/two-week-price-inflation-in-argentina.html#3dMRrB9lcvzJIDPG.99
Welcome to John Ransom’s Stocks in the News where the headlines meet the trendlines:
Market closed 2/17/2014- Headlines only
Stock number one:
Wave of Coal Retirements Coming by 2016--Wall Street Cheat Sheet
The Energy Information Agency projects in its Annual Energy Outlook 2014 that coal retirements will be much higher than what power companies are reporting. EIA predicts that around 60 GW of coal capacity will be shuttered by 2020, which would account for about one-fifth of the existing 310 GW of coal-fired capacity. But about 90 percent of those retirements would come before 2016 because new limits on mercury take effect in 2015 (with a possible one-year extension allowed), which will require power plant operators to install equipment to limit emissions of mercury, acid gases, and toxic metals. This pollution control technology is too expensive in many cases, forcing operators to shut the plants down instead.
Trailing PE; Forward PE:
Ransom Note Trendline:
Stock number two:
Detroit bankruptcy bond fight a watershed for municipal market-- Reuters
The city of Detroit's effort to declare some of its general obligation bonds as unsecured debt will be challenged in bankruptcy court Wednesday in what could be a precedent-setting turn in the largest-ever municipal bankruptcy in U.S. history.
The issue in front of federal bankruptcy Judge Steven Rhodes is whether a pledge of Detroit tax revenue to pay off the voter-approved bond issues is a binding obligation under Michigan law, as argued by bond insurers in two lawsuits, or merely a promise.
Trailing PE:Forward PE:
Ransom Note Trendline:
Stock number three:
Oil price above $100 on US heating fuel demand-- Associated Press
The price of oil extended gains above $100 a barrel Monday as the cold weather in the United States increased demand for heating fuels and solid Chinese credit numbers eased concerns over the world's number 2 economy.
By early afternoon in Europe, benchmark U.S. crude for March delivery was up 49 cents to $100.79 a barrel in electronic trading on the New York Mercantile Exchange. On Friday, the Nymex contract fell 5 cents to close at $100.30.
"The ongoing cold weather in the U.S. is continuing to lend support to energy prices," analysts at Commerzbank in Frankfurt said in a note to clients.
They added that prices are likely to correct, possibly as much as several dollars, once the cold weather abates, as happened at the start of last year.
Trailing PE; Forward PE:
Ransom Note Trendline:
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fghanistan stinks. The death, despair, cronyism, corruption, the companies licking their chops over lithium and rare earths deposits, the endless funds which are printed here and flow through Kabul to God only knows where, the “heroin bomb” dropped on American cities. The country may look like heaven in places, but for America it has been hell.
It should be noted that the Macedonians, the British, and the Russians, all found themselves bogged down in the Hindu Kush and expended treasure and blood with nothing to show for the effort. Afghanistan killed the Soviets as a superpower.
But we didn’t heed the lessons of history. We found ourselves at the heart of Asia, a strategically vital place and we just couldn’t bring ourselves to leave the it. It’s smack dab between China, India, the Middle East, and Russia. Afghanistan is at the crossroads to the Old World. It is a prize, but the cost is dear, terribly dear.
A Navy SEAL who left his job only a few years shy of full retirement said the following: “I got out because I couldn’t take it anymore. We tried to explain how much reckless danger we were being exposed to and they told us we were being illogical.”
This type of response has created a growing crisis of confidence between our warfighters and senior military leadership. His argument wasn’t illogical at all.
A gut-wrenching pattern began forming in early 2009, a pattern completely ignored by Congress, the White House, and apparently the DoD.
In the first seven plus years of war in Afghanistan (October 2001 – December 2008) we lost 630 U.S. soldiers. In early 2009, this administration authorized the implementation of the COIN strategy. Over the next five years, the U.S. death toll skyrocket to 2,292.
Seventy-three percent of all U.S. deaths in Afghanistan have taken place since 2009.
Read More at Against Crony Capitalism.org
If you repeat something completely inane enough times, do people, even economic writers, believe it?
To understand the context of my question, please consider the Bloomberg article Price Slowdown for Cars, Baby Clothes Raises Fed Concerns by Michelle Jamrisko and Ilan Kolet.
Five years into the U.S. economic expansion, inflation shows little sign of picking up as prices rise more slowly for goods and services from automobiles to medical care, complicating the Federal Reserve’s drive to guide the economy away from the precipice of deflation.
The personal consumption expenditures price index, minus food and energy costs, rose 1.2 percent in 2013, matching 2009 as the smallest gain since 1955. Of 27 categories of goods and services in the gauge, 18 showed smaller price increases over the past two years, according to data compiled by Bloomberg.
The slowdown has been broad-based, with durable goods such as autos, nondurables like clothing and services including health care all playing a role. Fed policy makers are on guard to keep such disinflation from morphing into outright deflation, a persistent drop in prices that prompts households to delay purchases in anticipation of even lower costs and leads companies to postpone investment and hiring.
Emphasis in red is mine.
In the following discussion, except where prefixed, the term "deflation" means a drop in consumer prices (even though that is a miserable definition).
I use that definition for point-of-discussion purposes only, simply to show the ridiculous nature of widely held beliefs.
"A persistent drop in prices prompts households to delay purchases in anticipation of even lower costs" say the authors of the above article.
I have heard that theory expressed hundreds, if not thousands of times. I suggest a reality check.
Reality Check Questions
Other than meaningless examples like waiting a few days for known sales, can anyone come up with anyconsumer item that people will delay purchasing simply because prices are falling?
Except in cases of extreme inflation or hyperinflation, I take the opposite view.
I propose people will delay purchases if prices are too high and/or they think they cannot afford something.
Take the worn-out coat as an example. If prices are too high, some will consider making that coat last another year. Perhaps they get the coat, but not the hat they also wanted.
Unless wages keep up, people can only spend what they make or what they can get credit for.
Where's the Evidence?
I cannot come up with a single consumer item that people will routinely delay purchasing simply because prices are falling. Can you?
Is there any hard evidence that shows people significantly delay purchases (other than asset purchases) when prices fall? (Please don't respond with insignificant delays ahead of pre-announced sales or year-end car clearances).
Even if people did delay consumer purchases (which they don't), why would it matter? Can People delay forever?
Asset prices, especially financial assets and real property, are another story.
People, especially those in debt, will indeed delay purchasing real estate if they expect better prices next year. History also shows people are reluctant to buy stocks and bonds if they fear lower prices.
Both of those are significant, but neither is represented in the CPI.
Corollary: People like bull markets in equities and bonds no matter how ridiculous the price.
PEs to Consider
Amazon: AMZN : The PE of Amazon is 592, Valuation is $160 Billion
Linked In: LNKD : PE of Linked In is 837, Valuation is $23 Billion
Facebook : FB: Facebook PE is 106, Valuation is $165 Billion
Priceline : PCLN : PE of Priceline is 36, Valuation is $64 Billion
Hertz : HTZ: PE of Hertz is 37, Valuation is $12 Billion
Starbucks : SBUX : PE of Starbucks is 483, Valuation is $57 Billion
Boston Beer (Samuel Adams) : SAM : PE of Boston Beer is 43, Valuation is $3 Billion
I could go on and on but I won't.
At current earnings, investors in Amazon will have to wait 592 years for a positive return on earnings. More realistically, they would have to wait forever because Amazon does not pay a dividend.
In the above list, the only company that pays a dividend is Starbucks, and it is a paltry 1%.
The only thing those companies have going for them is investors are willing to bid up asset prices to preposterous heights.
Why Inflation is Severely Understated
Krugman and others lord it all over those who predicted massive price inflation. I did too, and still do!
Along with Krugman, I laugh at those expecting a huge outbreak of "price inflation". Unlike Krugman, I understand what is going on.
The fact is, we currently have massive inflation. However, instead of inflation being visible in the form of higher consumer prices, inflation is visible in the form of asset price bubbles.
To see inflation, all you have to do is open your eyes and look at lofty valuations of stocks and bonds.
Deflation Coming Up
Don't hold your breath waiting for a surge in "inflation". We already had it. Instead, expect various equity and corporate bond bubbles to implode.
With the busting of various bubbles, asset prices will drop, and so will credit marked-to-market on any loans banks made on those asset bubble. So rather than expecting a huge surge in inflation, I expect deflation in terms of credit and prices.
Misguided Fed Policy
In an absurd attempt to prevent price deflation on consumer goods, the Fed has spawned asset bubble after asset bubble, each with a greater amplitude.
Given exceptionally poor jobs and wage growth, the very thing consumers need to survive is falling prices!
Yet, the Fed tries to prevent just that, all based on the idiotic premise "A persistent drop in prices prompts households to delay purchases in anticipation of even lower costs".
Feel Good Effect
Bubbles make people feel wealthy, and that exuberance spawns all sorts of poor economic decisions about what people can afford.
When asset bubbles collapse (as they always do), that's when people finally realize they spent too much and pull in their shopping horns.
Those expecting a huge pickup in price inflation, a spike in US GDP, or a big boom in housing, all based on misguided perceptions of "pent-up housing demand" or equally misguided theories about "excess reserves", fail to understand how Fed boom-bust and bank-bailout policies preclude such outcomes.
Further Deflation Discussion
For further deflation discussion please see ...
The Fed's attempt to spur inflation in a deflationary world causes the very thing the Fed fears most (an economic slowdown caused by a collapse in asset prices). In turn, a collapse in the valuation of assets causes bank losses and reduces desirability and even ability of banks to lend.
The Fed is fighting the wrong battle. It's a collapse in asset prices (not consumer prices) that will restrict bank lending and cause consumers to hold off on consumer purchases.
The only correct approach is to not spawn bubbles in the first place. (Please see Bubblicious Questions: What Causes Economic Bubbles? When Do Bubbles Burst? Can the Fed Prevent Bubbles?)
Return of Deflation
The current "feel-good" effect will not last forever, look out below when it wears off. Deflation, in terms of consumer prices, asset prices, and credit will return.
Misguided Fed policy ensures that outcome.
Mike "Mish" Shedlock
Read more at http://globaleconomicanalysis.blogspot.com/2014/02/deflation-theory-reality-check-why.html#osQwwECUK5idGmH1.99